NATO is preparing for a contentious summit this month, primarily due to the posturing by U.S. President Donald Trump ahead of the meeting. He has made it clear that he is unhappy - and Berlin is target number one. By DER SPIEGEL Staff

There's probably nowhere in Berlin more symbolic of U.S. solidarity with the Federal Republic of Germany than the former Tempelhof Airport. This summer, there will be celebrations at the site, now a massive park, to mark the 70th anniversary of the Berlin Air Lift, the spectacular aid effort by the U.S. Army from June 1948 to May 1949 to supply 2 million Berliners cut off by the Russian blockade. This was the site chosen by the U.S. Embassy to host its Fourth of July party last Wednesday."Tempelhof is one of those landmarks that show how much we mean to each other," said the outgoing chargé d'affaires. And U.S. President Donald Trump's new man in Berlin, Richard Grenell, said he felt humbled in the presence of so many people dedicated to trans-Atlantic relations.It wasn't just the setting that was historic. The evocations of German-American friendship also seemed to come from the distant past. Ever since Donald Trump became U.S. president a year and a half ago, the trans-Atlantic relationship is no longer what it once was. Trump has made it very clear that agreements, rules and traditions mean nothing to him. He ruthlessly puts the national interest -- or at least what he perceives as national interest -- ahead of an international order that was developed over the course of decades. He abandoned the Paris Climate Accord, ended the nuclear deal with Iran and thwarted WTO rules to impose tariffs on steel and aluminum from Europe. At NATO, the trans-Atlantic military alliance, there is fear now that he will soon take the next destructive step, and Washington's European allies are nervously anticipating the forthcoming summit next week in Brussels. Most alliance members outside of the U.S. expect Trump to pick his next fight at the meeting. "NATO is facing its biggest crisis since its founding," said former NATO secretary general, Anders Fogh Rasmussen. He says he is concerned that the NATO summit could end up being as big a disaster as the G-7 was. Specifically, Rasmussen is worried about Trump sparring publicly with his allies before paying court to Vladimir Putin four days after the NATO gathering, when he is scheduled to meet the Russian president in Helsinki.It is most likely that the U.S. president will turn on those allies who are not fulfilling the NATO goal of spending the equivalent of 2 percent of their GDP on defense by 2024. In particular, Trump has Germany in his sights -- and not completely without reason. Berlin currently invests 1.2 percent of Germany's GDP in its military, and the government has said that by 2024 it will reach a maximum of 1.5 percent. There are those in NATO who feel that the U.S. president may threaten consequences if Germany and other allies do not make greater financial pledges. No one believes it was a coincidence that the Washington Post recently reported that the U.S. was considering pulling its soldiers out of Germany.It's possible that Trump is also questioning the deployment of U.S. troops elsewhere in the world as well. He has let his allies know that he finds it increasingly difficult to justify to the American people why their soldiers are risking their lives when some countries do not share the common defense burden. And here too, Trump has a point: The Afghanistan mission alone cost the United States 80 times more than Germany. Over 20,000 U.S. soldiers were wounded and almost 2,000 died in battle. In contrast, 204 German soldiers were injured and 35 were killed. Many Points of ContentionThe worst-case scenario envisioned by Europe involves Trump calling into question Article 5 of the NATO Treaty, which holds that an attack on one alliance member is an attack on the entire alliance. Ever since Trump's election, the issue has been looming over NATO headquarters. Should he do so, Europe would then have to take care of its own protection, including the nuclear deterrent.Still, it won't be the fault of NATO Secretary General Jens Stoltenberg if the summit ends in disaster. The Norwegian has planned the gathering down to the minutest detail, visiting the capitals of all NATO allies and preparing the draft documents. The focus, of course, is the 2-percent target on defense spending.Beyond that, the alliance wants to agree on being able to increase troop numbers in Eastern Europe more quickly and efficiently should the need arise. The leaders also want to agree on the "NATO Readiness Initiative," which envisions the capability by 2020 of deploying 30 battalions, 30 battleships and 30 aircraft squadrons within 30 days or less. But because of the many points of contention, Stoltenberg believes it is entirely possible that the summit could end in failure. The secretary general has instructed his staff to prepare for a variety of negative scenarios, including a premature departure by Trump -- as happened at the G-7 summit in Canada -- or an angry speech by the U.S. president or even a Trump announcement that he is leaving the trans-Atlantic alliance. Trump's WatchdogThe most important thing, Stoltenberg has made it clear, is that the remaining allies present a united front. Yet without U.S. military might, the alliance would be as "obsolete" as Trump has claimed it is. The president already demonstrated to his allies how little he thinks of diplomatic niceties when he visited NATO last May. "Twenty-three of the 28 member nations are still not paying what they should be paying," he complained, adding that they owed "massive amounts of money." The U.S. president sounded like he was lecturing a group of unruly schoolchildren. At a rally in Great Falls, Montana last Thursday, Trump made it clear that his thinking hasn't changed. "Germany, which is the biggest country of the EU ... Germany pays 1 percent. One percent. And I said, you know, (Chancellor) Angela (Merkel), I can't guarantee it, but we're protecting you and it means a lot more to you than protecting us because I don't know how much protection we get by protecting you." Berlin is bracing itself for similar hectoring at the summit -- a continuation of the kind of treatment received by German Defense Minister Ursula von der Leyen during her recent trip to Washington. A member of Merkel's center-right Christian Democrats, von der Leyen had actually gone to explain to the U.S. government why Germany would not be able to reach 1.5 percent by 2024. At the same time, she was armed with facts and figures to show how deeply the German military was engaged in the alliance. But that didn't help the atmosphere. For one thing, U.S. Ambassador to Germany Richard Grenell surprised the Germans by flying to Washington to take part in all of the minister's discussions there. It was an unmistakable gesture: Donald Trump's watchdog was there to make sure that Berlin did not get off lightly.Grenell left the attacking to John Bolton, Trump's national security advisor. Von der Leyen spent almost an hour in Bolton's narrow White House office, ensuring him that she had used almost all her political capital to push for an increase in defense spending. Bolton listened, his staff diligently taking notes. But von der Leyen was unable to persuade the hardliner, and shortly before the end of the meeting, Bolton made the U.S. viewpoint clear, explicitly saying he was speaking in the name of the president. German engagement was nice, he said. But for the former businessman Trump, "only cash" mattered. Because Berlin hasn't delivered on that score, Bolton said, Trump was quite angry. As she was leaving, von der Leyen was given a letter, sealed and addressed to Chancellor Merkel. It was immediately apparent to the minister that it was unlikely to be a diplomatic declaration of friendship. The damaged relationship between Berlin and Washington was evident right at the beginning of the letter. Instead of the usual hand-written salutation, Merkel was addressed with the type-written "Dear Ms. Chancellor." In diplomatic correspondence, it doesn't get any frostier than that. The letter was signed with Trump's mighty signature. Sharing Trump's UneaseThe brief text was extremely clear. There is "growing frustration in the United States that some allies have not stepped up as promised," he wrote. The fact that some European countries, including Germany, were not prepared to spend more is "no longer sustainable for us."The letter makes Trump's disdain for Merkel unmistakably obvious, and he even accused her of turning other EU states against him. "Continued German underspending on defense undermines the security of the alliance and provides validation for other allies that also do not plan to meet their military spending commitments, because others see you as a role model," he wrote. When the letter first arrived in Berlin, it left many experts in the government speechless. They then learned that other EU allies and Canada had received similar letters from Trump, but that they were more moderate in tone. That has led German officials to believe that Berlin could become Trump's primary target at the NATO summit. There are, though, many in Berlin as well who agree with Trump on this issue. "I also worry about the future of NATO," says Alexander Graf Lambsdorff, deputy floor leader of the pro-business Free Democrats. But that's not just the U.S. government's fault, he argues. "An SPD foreign minister signed up to the 2-percent target and naturally Germany has to fulfill it at some point," Lambsdorff says. "Trump's letter is understandable," says Roderich Kieswetter, a defense expert for the Christian Democrats. "The U.S. president is essentially only criticizing Germany for the same thing his predecessor criticized it for."According to the latest research by the German Council on Foreign Relations and the German Institute for International and Security Affairs an increase of military spending to 2 percent of GDP would require an extra 6.8 billion euros budgeted to the military each year. By 2024, that would be 85 billion euros, almost 30 billion more than either France or the U.K. spends. It would be the second biggest defense budget in NATO after that of the United States. A Long-Running DisputeThe truth is, the dispute about the cost of freedom is as old as the Western alliance itself and it has always been intense. The roles have also always been the same: The Americans push, the Germans push back. The German contribution was "excellent," Chancellor Helmut Schmidt insisted back in the 1970s while his finance minister, Hans Matthöfer, made the searing comment that unlike American GIs, German soldiers had an "average level of intelligence." They could, Matthöfer said, "all read and write" and didn't have any drug problems. These things should be taken into account, he said, when comparing defense budgets. Even Konrad Adenauer, Germany's first postwar chancellor, was reticent on defense spending -- and when he was confronted by Washington, he simply claimed he knew nothing about the requirement. In 1977, Schmidt's government promised to increase defense spending by 3 percent annually. Every year he and his ministers would said they would stick to this promise, yet every government up to the fall of the Berlin Wall failed to do so. In contrast to the past, however, there is a president in Washington who is prepared to actually cast doubt on the future of the Western alliance if German spending doesn't improve.Aside from the budget issue, Merkel is expecting that Germany will face additional criticism at the summit as well. The SPD, for example, is vehemently opposed to the German army taking part in a NATO operation to train troops in Iraq. Almost every other NATO ally has already signed up for the operation. The German military is, to be sure, planning on taking part in two other training projects in Iraq, missions that involve German experts flying in from Jordan to help train Iraqi officers and a mine clearance team for six to eight weeks at a time. But due to SPD objections, the German mission is considered part of the coalition against Islamic State and is not subject to NATO command. Tenuous German NarrativeIt is a model that has raised hackles among several NATO allies. In a private discussion recently, the normally stoic NATO secretary general, Jens Stoltenberg, told German defense experts that no one in the alliance could understand why Germany wanted to engage with Iraq but expressly not with NATO. The Bundeswehr's current problems also play into Trump's hands. It was only two weeks ago that the German navy had to withdraw from military commitments to NATO because its two remaining tanker ships had become so old that they needed to be repaired. Such incidents don't exactly help the German narrative, which holds that Berlin is doing its part militarily even if its defense spending isn't to snuff. The U.S. president knows how to heap pressure on his allies and he sees the U.S. soldiers stationed in Europe as his biggest trump card. According to the Washington Post article, the Pentagon is currently studying how expensive it would be to withdraw or move a large part of the 35,000 troops stationed in Germany.The article surprised many in Berlin. Only a few hours before it was published, Ambassador Grenell had told officials in a private conversation that there were no plans to withdraw troops. Quite the opposite: In the coming years there would actually be more U.S. soldiers stationed in Germany than before, he told them.There's no way of knowing whether the ambassador, a close Trump confidante, was lying or if the article was inaccurate. What is certain, however, is that these kinds of episodes heighten concerns in Berlin that the summit will end in disaster. The NATO allies now realized that they are dealing with an "unpredictable and obviously mentally impaired American president," says the president of Germany's Federal Academy for Security Policy, Karl-Heinz Kamp. This realization hangs above the summit like a "Damocles sword." It's a summit that "completely independent of factual issues, can only end in chaos."By Matthias Gebauer, Konstantin von Hammerstein, Peter Müller, Christoph Scheuermann, Christoph Schult and Klaus Wiegrefe

Our research team has been watching the foreign currency markets with great interest. Recently, the strength of the US Dollar has put extended pressures on many foreign currencies. The recent crash of the Chinese Yuan has alerted many traders to the concerns that China could be edging over the precipice in terms of debt and credit market collapse.As traders/investors, we need to understand how these currencies move, and future moves may drive the global equity markets to new highs or lows. Let’s take a brief look at how some of our proprietary indicators are set up on these Weekly charts.

Weekly British Pound chartThis Weekly British Pound chart showing our proprietary Fibonacci Price Modeling system presents a very clear picture that the current trend is Bearish and that price is contracting. The Weekly Fibonacci price modeling system functions as an adaptive price modeling system – allowing the price rotations (peaks and valleys – highlighted by the yellow, cyan, magenta and white markers on the chart) to develop into a concise and efficient current model of price expectations and projections. The multiple price projection levels (the six projected lines to the right of the current price bar) show us where price may attempt to target should a breakout move happen.Notice that the current British Pound price has reached and stalled near the 1.3100 level – which is exactly where two of our Fibonacci price modeling system has predicted with the Red and Grey projection levels? Also, notice how the Blue and Cyan projected levels are aligning near 1.3775? This would be a proper expected price level should price find some support near the 1.3000 level and attempt a short recovery.As get further into these charts, please understand the key elements of these charts and what they are attempting to illustrate to all of us. With each pivot high or low, this price modeling system identifies a “trigger price level” that is used to confirm a trend reversal (if it happens) as well as to identify key future support/resistance. These are drawn as Green and Red horizontal lines. You’ll notice a Green trigger price level near the current price bar – this is the “upside price trigger level” that would have to be breached if we were to see any further upside price advance. As long as price stays below this level, we should continue to expect a downside price move with a strong potential for new lows.Summarizing this charts analysis, the current trend is Bearish. The current bullish trigger level is near 1.3600. Price is trending lower from a previous Bearish price trigger level near 1.4240. Price has reached the two (Red & Grey) projected price levels which means we should expect some price consolidation near these levels before establishing a new price trend (extending lower or rotating higher). Recent, new price bar lows show a very strong potential for further downside price activity. At this point, we see that support from a previous bottom, near 1.3060, will likely cause the price to stall near this level. We believe the price will continue to fall below the 1.3000 eventually as the strength of the US Dollar continues to push higher and the Brexit issues continue. The British Pound could fall well below 1.2500 before finding real support. Wait for this consolidation period to end and watch for lower prices to continue.

Weekly Canadian Dollar chartThis Weekly Canadian Dollar chart below shows a very interesting setup with our proprietary price modeling system. Notice the wide range between the trigger price levels (Green and Red) near the right edge of this chart? This extended range of the trigger price levels happens when the adaptive price modeling system finds price trend rotation. Previously, on this chart, we can see the trigger price levels were closer to price and within rotational ranges – the most recent breached trigger level being a Red (Bearish) trigger – indicating the start of a new bearish trend near February 5, 2018.At this point, should price fall below 0.7450, we should expect price to continue to drop towards 0.7250. Upside resistance should be near the Cyan projected price level – near 0.7850. Unless the Canadian Dollar finds support near 0.7500 and rotates higher to breach 0.81875 – this is nothing but extended price rotation. Typically, as price sets up an extended Top or Bottom, the trigger price levels will eventually tighten to establish a breakout trend setup. Right now, the extended ranges of these trigger levels is showing us that volatility and price rotation should be expected and the downward sloping Moving Average level will likely operate as a key resistance zone. The YELLOW markers at the bottom of the chart show us that price range is expanding and volatility is increasing. We could see some bigger swings in the Canadian Dollar over the next few weeks and months – but the trend is still bearish.

Weekly Euro chart

This Weekly Euro chart shows a more traditional price rotation setup with our Fibonacci price modeling system. Notice how the trigger price levels are very narrow and close to the current price. You’ll also notice the Cyan price trend indicator, near the bottom of the chart, that is indicating that price range is contracting. The two price trigger levels (Red and Green) provide very clear breakout trigger levels (bullish near 1.1913 & bearish near 1.1687). The most recent trigger level to be breached was the Bearish level near 1.2200. A recent low price rotation has established a new low price pivot that is projecting much higher price projection points. Additionally, a more recent high price rotation has established new lower price projection points.This sideways price rotation will be broken and a new trend will be established in time. At this point, we know the 1.1913 level is the bullish trend trigger point and the 1.1687 level is the bearish trend trigger point. Price trend is still bearish and any lower price breakdown below 1.1576 would be a strong indication that price is breaking below current support and should attempt to move to near 1.1000. To summarize, the Euro appears to be under extended pressure and any price breakdown could be a great short for traders.

Russian Ruble Weekly chart

Lastly, this Russian Ruble Weekly chart shows, again, price rotation and volatility. Notice how the bullish trigger price levels have been expanding throughout this sideways price rotation for the past year or longer?As we stated early, the adapting modeling component of our proprietary Fibonacci price modeling system identified this rotation as “extended price congestion” and attempts to identify broader market breakout levels as a means to confirm a true change in price trend. The most recent bearish trigger price level was breached on April 9, 2018. Price is trending lower/bearish and the price trend indicator near the bottom is showing yellow – price volatility is expanding. We should expect further downside price moves with expanded volatility. Any price move below 0.01520 will indicate a very strong downside price move with the potential for price to reach 0.01250.

Concluding Thoughts:

Overall, we need to remember the recent political, economic and geopolitical conundrums are reflecting in expectations within global economies and currencies to be put under greater concerns. What was once a given, that the world would continue to operate without much disruption in the global balance of thing, is now open for debate. We are watching global concerns and liabilities as a result of China’s recent downturn and currency devaluation reflect in additional concerns throughout the global currency markets. We have to be aware that these issues typically don’t end quickly or without some form of government intervention. This means we may have quite a bit of time to play these moves and find good trades.Right now, the Russian Ruble, British Pound and the Canadian Dollar appear to be poised for a breakdown in prices in the immediate future – breaking through support and possibly dropping to recent historical lows. The Euro is setting up for a breakout/breakdown move with a very narrow trigger price level range. The Euro may follow rally, briefly, if the US Dollar retraces a bit from current levels. Remember, these are weekly chart and help to understand the broader price trend. A breakdown in the Russian Ruble, British Pound and Canadian Dollar would likely coincide with a rally in the US Dollar and possibly the Euro. Therefore, watch for weakness in these markets and strength in the US Dollar as these moves happen.

Cash-strapped Chinese companies surviving on a wing and a prayer received welcome news from on high today: Beijing is yet again kicking the stimulus engine into gear.The country’s main stock benchmark was up 1.6% Tuesday, after a call from China’s cabinet overnight for more fiscal spending, abundant liquidity, and—perhaps most significant—support for the “reasonable” fundraising needs of local governments’ notorious off-balance-sheet financing vehicles, a key locus of bad debt. The announcement follows a half-trillion yuan ($74 billion) central bank injection into the banking system Monday and, according to local media, incentives for banks to buy low-rated corporate bonds.Stimulus has arrived.The yuan was the most immediate casualty: It hit another one-year low against the dollar Tuesday, bringing its decline since May to more than 6%. Commodities could eventually benefit. Copper prices, down nearly 20% since mid-June, have shown signs of stabilizing in recent days.

What form will the jolt take? A cut to the benchmark one-year policy rates still isn’t that likely because, following years of interest-rate liberalization, it isn’t as relevant. The weighted average bank lending rate was 1.6 percentage points above the benchmark rate in the first quarter, while a full 74% of loans were executed above the benchmark rate in March: both record highs. A benchmark rate cut would also leave egg on the face of President Xi Jinping, a strong advocate of a tougher stance on debt.Instead, the central bank will likely try to lower banks’ funding costs more discreetly while amped up fiscal spending supports infrastructure build—and the balance sheets of indebted downstream industrial companies. One possibility is cheaper loans from the central bank’s key lending facility. Borrowers currently pay 3.3%, a full 70 to 100 basis points more than in the interbank market. That incentivizes another risky buildup of interbank leverage, undoing a key accomplishment of the central bank’s de-risking campaign over the past two years. Interbank trading is already rising again: Volumes on the overnight repo for the last two weeks were both the highest since 2016. Further cuts to banks’ required reserve ratios are also likely.China’s currency will face further tests, particularly if the Federal Reserve holds its ground against President Donald Trump’s outburst against higher U.S. interest rates last week. And if China’s housing market or factory-gate prices start looking droopy, then a bigger stimulus—and much more currency and commodity volatility—could be in the cards.Still, the odds remain good that this round of stimulus will be smallish, both because the economy is in better shape than in 2015, and because “deleveraging” has gained political traction under Mr. Xi. The statement Monday night emphasized that policy makers wouldn’t “inundate” the economy with stimulus. Yuan bears and commodity bulls shouldn’t get too excited yet.

As the greenback rises international banks get cautious and that can crimp performance

By Paul J. Davies

MIRROR SIGNALPerformance of global bank stocks and of the dollar against developed economy currenciesSource: FactSet

It has been all downhill for international bank stocks this year. One reason why this trend will probably continue is the strengthening dollar.When the greenback gets stronger, non-U.S. banks’ appetite for risk diminishes and their share prices suffer. This phenomenon, which bites banks almost everywhere outside the U.S., has been documented in the past couple of years by economists at the Bank for International Settlements, the central bank for the world’s central banks.Investors should be paying attention now, not only because the trend can help explain why bank shares have performed badly so far this year, but because it suggests they might continue to do so.

There are other reasons for banks’ underperformance, like a weaker global outlook and, in Europe, the expectation that interest-rate rises will now take longer to arrive than once hoped. It is also easy to focus on idiosyncratic problems like Deutsche Bank ’s restructuring, Spanish banks’ exposure to emerging markets such as Brazil, Mexico and Turkey, or the U.K. and Italy’s political uncertainties.

A view of homes in Rio de Janeiro, Brazil. Banks use dollars for a lot of lending in emerging markets Photo: Dado Galdieri/Bloomberg News

Still, the dollar effect matters, and in Europe, Asia and elsewhere it looks set to make things worse. The U.S. economy’s stronger growth and tighter labor market should mean further rate rises and in turn a strengthening currency.Why does this affect banks? In simple terms it is through the value of collateral – the homes, buildings and equipment that most borrowers put up as security against their debts.

BIG CLAIMSCross-border loans in dollars to ordinary, non-financial companies are at record levels March 31, 1990 - December 31, 2017Source: Bank for International Settlements

Many banks use dollars for lending backed by non-U.S. collateral. When the dollar strengthens, that collateral falls in value compared with the loan, so the loan becomes riskier. This is true even if the lending is to a business that makes money in dollars, although the problem is worse if the business deals in local currencies.Banks use dollars for a lot of lending in Europe and emerging markets. The best data on this relate to cross-border lending, which collapsed after the crisis. But now, dollar loans to non-financial companies hit a record $6.6 trillion at the end of last year, according to BIS data.Non-U.S. banks now face a double headwind against revenues and margins. A stronger dollar will probably mean they make fewer new loans and thus revenues. At the same time, lower yields on 10-year government bonds in the U.S. are squeezing the difference between short-term and long-term rates—the infamous flattening curve—which makes lending less profitable for banks.This could in turn knock economies. Less new lending in many countries might further slow global growth in the money supply, which is already at its weakest since 2009, according to Absolute Strategy Research.Investors are right to be taking a dim view of Banks.

LONDON – There are widespread worries that US President Donald Trump’s protectionism will erode the long-term benefits of global trade. There are also hopes, mostly among Trump’s supporters – including many US companies – that tough policies can prevent China from becoming America’s technological equal. But worries about the long-term impact of reduced global trade may be exaggerated, and the hope of keeping China down has no chance of being fulfilled.Trade occurs for three reasons. For starters, countries have different inherent resources: some have oil, others copper; some grow bananas, others wheat. If that trade were stopped, global prosperity would suffer. But trade in commodities and agricultural goods actually counts for a minor share of total trade, and will undoubtedly continue to do so.Trade also reflects differences in labor costs. Low-cost countries produce labor-intensive manufactured goods, using machinery imported from high-labor-cost countries. As economists such as MIT’s David Autor have shown the impact of this in developed countries can be both bad for some workers and good for company profits. But it can be extremely good for any developing country that fosters a fruitful balance of inward investment and local entrepreneurship and uses the proceeds of export-led growth to invest in infrastructure and skills. China’s dramatic economic success would have been impossible without trade initially driven by labor-cost differences.In the future, however, this type of trade will probably become less important. With wages in China now rising rapidly, its labor-cost advantage is fast diminishing. And while many people assume that manufacturing will then move to other low-wage countries – say, in Africa – much of it may return to advanced economies, though to highly automated factories that create very few jobs.Finally, specialization and economies of scale in manufacturing, research and development, and brands generate trade between equally rich countries. European luxury cars are exported to the US, Harley Davidsons are imported into Europe, and multiple highly specialized items of capital equipment are traded in both directions.Once these trade connections are in place, any sudden change in tariffs will be severely disruptive. So Trump’s policies undoubtedly pose a major short-term threat to global growth. But in the long term, trade between continents of roughly equal income per capita is less crucial to prosperity than often assumed.The key issue is how large an economic area is needed to foster economies of scale and complex integrated supply chains while still maintaining intense competition among multiple firms. If a country like Ireland, with a population of five million, tried to be self-sufficient in all goods, its income would be a fraction of today’s level. Even if much larger Britain, France, or Germany attempted autarky, the hit to productivity and living standards would be very large.But China’s continental economy of 1.4 billion people could achieve almost all possible economies of scale while still maintaining intense internal competition; in principle, India could, too. The United States, with 300-plus million people, would suffer only slightly if it exported and imported little beyond its borders, and the same is true for the European Union’s single market of 520 million.Beyond some point, the potential benefits of wider trade between equally rich countries inevitably decline. If there was less trade among the continental-scale economies of China, the US, and Europe in 2050 than there is today, the direct impact on living standards would be small.What would be lost without global trade – and even more so without investment flows – would be the transfer of knowledge, technology, and best practices. China’s economic takeoff began with labor-cost arbitrage, but has been sustained by massive knowledge transfer. And while a small element of that transfer reflected industrial espionage, the vast majority was automatic, legal, and inevitable.Chinese workers and managers employed by Western companies learned new techniques. Suppliers had to meet high standards, and local entrepreneurs could then draw on quality supply chains to compete. Joint ventures inevitably led to knowledge transfer to local partners, and Western companies willingly entered them to gain access to China’s huge internal market.

The US is now worried about China’s rising technological prowess. Businesses regret the loss of economic rents that arise from superior technology and intellectual property; and national security hawks worry about the potential geopolitical consequences of America’s eroding technological edge. Tariffs on Chinese goods are in part a response to such concerns, and limits on Chinese acquisitions of American high-tech companies address this perceived threat directly.

But it is simply too late. If, back in the 1980s and 1990s, the US government, rather than arguing for Chinese economic opening, had prohibited any US company from investing there, China’s rise would have been significantly delayed, though not permanently prevented.Because that did not happen, China’s rise is now self-sustaining. A huge and increasingly affluent domestic market will make exports less vital to growth. Rapidly rising wages are creating strong incentives for best-practice application of robotics, and China’s companies are becoming cutting-edge innovators in artificial intelligence, electric vehicles, and renewable energy. And President Xi Jinping’s “Made in China 2025” program will help foster a shift to high-value manufacturing supported by Chinese domestic R&D. Even if the US now slammed the trade and investment doors shut, it would make little difference to China’s rising economic and political power.That is not true of poorer developing economies, such as India and all of Africa, which hope to emulate China’s rapid rise. These economies already face the threat that automation will foreclose job creation in export-oriented factories. The most important priority amid today’s Trump-induced turmoil is to ensure that such challenges are not exacerbated by harmful restrictions on trade.

Adair Turner, a former chairman of the United Kingdom's Financial Services Authority and former member of the UK's Financial Policy Committee, is Chairman of the Institute for New Economic Thinking. His latest book is Between Debt and the Devil.

Australia is the region’s major power, but now there are signs of life from New Zealand.

By Jacob Shapiro

An overlooked multilateral organization in the South Pacific is about to get a facelift. Until now, relations between the members of the Pacific Islands Forum, which comprises Australia and New Zealand as well as 16 other Pacific island nations, have been defined by the Biketawa Declaration. Signed in 2000, Biketawa outlines how South Pacific nations deal with a regional crisis – and it served as the formal mechanism by which Australian and New Zealand forces were deployed to the Solomon Islands, Nauru and Tonga in recent years. Biketawa envisioned a post-Cold War world in which the biggest threats were internal. But the world has changed, and so must Biketawa.

New Zealand’s Ministry of Foreign Affairs and Trade was the first to announce the move. On July 5, it said a new security agreement was going to be signed at the Pacific Islands Forum in Nauru in September. Australia’s international development minister added a little more detail, explaining to The Australian that the new pact would provide a better framework for South Pacific nations to respond to “emerging threats.” China has increased its financial aid and loans to South Pacific nations in recent years, but money is essentially the only lever China has at this point. Chinese naval forces are too weak and its political ambitions too intrusive to project power into the región.

Australia is the major power in the South Pacific, but now there are also signs of life from New Zealand. New Zealand has always been the most distant of the “Five Eyes” – an alignment of the U.K., the U.S., Canada, Australia and New Zealand. It is by far the most insecure of the five, and that has always meant that New Zealand must be more pragmatic in its foreign relationships. By virtue of its size, New Zealand also simply has fewer resources to contribute. But even despite the occasional ups and downs, especially in its relations with the U.S. (e.g., it banned nuclear-powered or nuclear-armed vessels from its waters in the mid-1980s, a policy that is still in effect), New Zealand’s loyalty has never seriously been in question.

That doesn’t stop people from questioning New Zealand’s fidelity, of course. A report by the Canadian Security Intelligence Service in May made waves when it suggested that New Zealand was the “soft underbelly” of the alliance and might host Chinese naval facilities in the future. The report was merely a collection of independent views that did not represent Canada’s official position, but that did not stop speculation from running rampant over New Zealand’s position. The report became so widespread that it elicited a response from New Zealand’s prime minister, who dismissed it as idle chatter.

Then, at the end of last week, New Zealand released its Strategic Defense Policy Statement, and it left no doubt to where Wellington stands on China. The document criticized China for asserting its influence in Asia (and expressed concern about China’s expansion in Antarctica). China’s Foreign Ministry criticized New Zealand on Monday for that position, claiming that New Zealand should do more to build mutual trust in the region. Building trust may appeal to New Zealand’s sensibilities, but nice-sounding words don’t jibe with China’s militarization of the South China Sea and plays for influence in the South Pacific. While China was crying foul, New Zealand announced a much louder move on Monday with the purchase of four submarine-hunting surveillance jets from the United States for $1.5 billion.

In the past week, then, we’ve seen the Pacific Islands Forum, led by Australia and New Zealand, indicate that its members will sign a new security framework to protect South Pacific nations from external threats. We’ve seen New Zealand release an official government report identifying China as a primary challenge to national security. And we’ve seen New Zealand take a step toward enhancing its defense capabilities by purchasing military aircraft from the United States. China has vast financial resources to peddle in the South Pacific, but its interests are inherently expansionist, while Australia and New Zealand’s interests are primarily defensive. That may be enough to keep the South Pacific aligned against China for now, but that is not the end of the challenge. It is the beginning.

If you know the other and know yourself, you need not fear the result of a hundred battles.

Sun Tzu

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.